Makers, Takers, and the Politics of Economic Development

Knowing where the money in your community comes from is critical information for economic developers. If the people in your community are predominantly working-age and earn most of their income from wages, then you may want to focus on strategies for raising wages, such as workforce training programs. By contrast, if your community is a popular retirement destination in Florida, and most of the income comes from 401ks, then you may want to focus on growth strategies more appropriate for a city of retired or semi-retired people, such as lifestyle entrepreneurship. Knowing where the “new” money comes from, or identifying your “base” in economic development parlance, should be among your first steps in formulating strategies for economic development.

That’s really the best I could do in attempting to start this post with a focus on traditional economic development issues. A valiant effort, for sure, but perhaps a stretch of questionable proportion.

This post is really about politics. Economic development is inextricably linked to politics, and it will be that way as long as locally elected politicians govern communities with separate tax bases. Accordingly, this blog takes the occasional detour into the impact of politics on economic development, with a spin on data analysis.

With the rise of the Tea Party and the proliferation of bumper-sticker catchphrases lacking any resemblance to nuanced debate, such as “makers and takers” or “you didn’t build that” or “the 1%,” there’s apparently a lot of interest these days in the appropriate degree of government involvement in our lives. Since the vast majority of economic development work is funded with taxpayer money, this is not an inconsequential issue. Running an effective program may be challenging if your community is convinced that government is the root of all evil.

So, in the spirit of encouraging more informed, data-driven discourse and less bumper-sticker evangelism, here’s one suggestion for using readily-available data to have more reasonable conversations about this topic. BEA publishes data on government transfers to households, which include things like Social Security, Medicare, Medicaid, income maintenance programs such as SNAP (food stamps) and what people commonly refer to as “welfare,” and unemployment insurance. At the national level, government transfers make up approximately 17 percent of total personal income, but there is a wide range at the county level, from about 55% in Owsley County, KY, to about 5 percent in Douglas County, CO.

In other words, Owsley County, KY, at 55 percent of total personal income, is more reliant on government programs as a source of income than any other county in the US. In fact, there are three counties in the US where government transfers account for more than 50 percent of total personal income, and they are all in Kentucky (as well as 13 of the top 25).

And, interestingly, they all went strongly for Romney in the 2012 election. As did 21 of the top 25 counties ranked by government transfers as a share of total personal income (2011):

In fact, about 75 percent of the counties most reliant on government transfers (at least 2x US average) as a share of total personal income voted for Romney in 2012. Now, to be fair, I can’t find any meaningful correlation between reliance on government transfers measured this way and the outcome of the presidential vote when using the entire county data set, but I think some of the outliers are interesting.

Adding a column to the data set for per capita income and grouping the counties by wealth, or incorporating other variables like age or race/ethnicity, may be revealing. You could also break out the components of total government transfers into the various programs–Social Security, Medicare, SNAP, etc.–and re-run the numbers. The counties receiving a higher share of total government transfers in the form of income maintenance appear to be more strongly correlated (positively) with Obama’s share of the vote compared to medical care via Medicare and Medicaid. But that relationship disappears when calculating transfer payments as a share of total income.

Sidebar: Another popular misconception is how much is spent on each program. Total government transfer payments are distributed as follows for the most well-known programs: Social Security (32%), Medicare (24%), Medicaid (18%), Income Maintenance (12%), and Unemployment Insurance Compensation (5%).

Personal sidebar: Benefit programs for Veterans get a paltry 2.8% of total government transfers, a fact that every US citizen should know and take at least five minutes out of your day today to think about.

At any rate, my point here is that economic developers are hardly empty-handed when it comes to facing down critics with political axes to grind. Facts don’t always carry the day, especially when dealing with entrenched perceptions and party politics, but hopefully we can elevate the state of debate, at least a little.

Interesting study. The nuance missing is that most of those counties are in “coal country”. It isn’t an either/or discussion to them. The prevailing attitudes were to get rid of the guy that either already helped shut down the mines or is going to regulate them out of business. The whole big vs. small government discussion just made a tidy category for their key issue.

I was hoping to see # if individuals receiving aid in order to get a sense of magnitude or % median income. All the higher % counties are very small with few high $ wage earners. Imagine the % in NYC if you just take out the top .1% of salaries?

This analysis is pretty weak because you can have a highly bifurcated county with 49% Democrats on the government dole and 51% Republicans and it will register as a highly dependent county but votes as Republican (or vice versa for that matter). Also, Romney had smaller counties and more of them, so it has a higher likelihood for events to happen in Romney districts. I’ll bet Romney won the largest number of car accident counties too. And how much of these counties contains high percentages of retirees? A social security check that a senior paid into his whole life is not what people consider when they consider dependency, but it will show up in a “government transfer” payment. Read the whole analysis here:http://www.youargue.com/index.php/55chr13st23